Factors determining fuel prices in Uganda: a case study of Ibanda District

Abstract

The main objective of the study was to identify factors that determine fuel prices in the country. The study used a sample of 25 petrol stations, in Ibanda district which was chosen as the case study. The study used primary data which was collected from respondents using a well-designed and pretested questionnaire on the Kobo collect app. Secondary data from URA, UBOS, Bank of Uganda and Ministry of Energy was used to supplement the data obtained from the study respondents. Data cleaning was done using excel and STATA and later analyzed using STATA software. ARDL modelling was used to examine the factors influencing fuel prices in Uganda. Study findings revealed that that overall, prices of all three fuel types increased over 2017-2022. Diesel and Petrol prices changed at approximately the same rate. Prices of Kerosene were more stable compared to Diesel and Petrol. Majority of the respondents were of the opinion that fuel prices on the international market (64%), imported inflation (72%), taxes imposed on petroleum goods (84%), depreciation of the local currency (60%) and exchange rates (52%) determine fuel prices in Uganda. Results from multivariate analysis show that petrol taxes and fuel import bill were significantly associated with petrol prices (p<0.1). Exchange rates, inflation rates and kerosene taxes were significantly associated with kerosene price (p<0.1). The fuel import bill and exchange rates at first lag were significantly associated with diesel price (p<0.1). The study highlighted the following recommendations; Increase investment in export promotion sectors such as the manufacturing sector. This would aid in stabilizing foreign exchange rates and balance out the fuel import bill which helps in reducing fuel prices. Government regulatory authorities for example Uganda Revenue Authority should consider significant fiscal and common costs associated between the fuel prices and factors determining fuel prices like inflation, exchange rates and taxes that are poorly understood. The authorities should make sure fuel pricing systems correlate those factors.